How should we assess ASML's stock plunging 16%, marking its largest single-day drop in 26 years?

Has it offended its 'godfather'—its biggest customer? Global lithography giant ASML has suffered a major setback, becoming one of the biggest casualties of the U.S.-China tech war. Here’s what happened: Just days ago, ASML released its Q3 financial report—and one figure immediately caught global investors’ attention: its order volume, which came in at only about half of expectations. At this rate, ASML is projected to face a massive profit collapse by next year. Faced with such dismal data, ASML’s stock plunged sharply—losing over RMB 500 billion in market value in just two days, its steepest decline in 26 years. Many people are puzzled: How could ASML—a global leader in lithography machines and a true crown jewel of human industrial capability—suddenly falter so dramatically? The answer is actually quite simple: It alienated its largest customer! Who needs lithography machines most globally? Undoubtedly, China. As the world’s largest industrial nation—and the top global producer of automobiles, computers, ships, and smartphones—China relies heavily on high-precision chips for all these products. And those chips can only be manufactured using lithography machines. For a long time, China has been ASML’s largest customer. According to ASML’s own statistics, in the first half of this year, 49% of its orders were shipped to the Chinese market—meaning roughly half of ASML’s revenue comes from China. Let’s be frank: This isn’t just a customer—it’s practically a ‘godfather.’ If I were an ASML executive, I’d immediately relocate my factory to China and sign a 30-year cooperation agreement—only deep integration like that would give me peace of mind. So—how did ASML actually respond? In 2018, when Trump launched the trade war against China, ASML acted almost simultaneously with a highly questionable move: We had already ordered an EUV lithography machine and paid in full—but ASML refused to deliver, citing 'pressure from the U.S.' When confronted with this blatant breach of commercial ethics and serious untrustworthiness, we immediately declared it a violation of business norms. Seeing that reason was clearly on our side, ASML resorted to an absurd excuse: it announced that a fire had broken out at its factory—conveniently destroying the very machine we’d ordered. That way, it could appease the U.S. while avoiding accusations of fraud. But that wasn’t all. Shortly afterward, ASML followed the U.S. lead and imposed sanctions on China—refusing outright to sell EUV lithography machines to us. At the time, it confidently proclaimed: 'Lithography machines represent the pinnacle of human technological civilization—even if you had the blueprints, you couldn’t build one.' What happened next is well known: Without indigenous lithography machines, producing advanced chips proved extremely difficult. Huawei—once ranked No. 1 globally—was nearly wiped out of the smartphone market overnight due to chip supply disruptions, while U.S. rival Apple quietly surged ahead, pushing its market capitalization to $3 trillion.

Global lithography giant ASML’s Q1 orders fell far short of market expectations, triggering a >6% stock drop at market open. What key information deserves attention?

This situation may be more interesting than it first appears—let’s unpack it. First, when analyzing ASML’s performance, we typically focus on two metrics: sales revenue and new orders. Revenue is tied to deliveries: Only upon shipment does a sale count toward revenue; signing an order does not. ASML’s 2023 performance surged significantly, with sales reaching €27.6 billion (including €5.6 billion from maintenance services for legacy equipment). By comparison, 2022 sales totaled €21.2 billion (with €5.7 billion from legacy maintenance). Excluding legacy maintenance revenue, ASML’s 2023 sales grew by 42%. Performance strengthened progressively through the year—with Q4 hitting an all-time high. Who contributed most to this growth? China. A large share of the incremental deliveries in 2023 were to Chinese customers. Why? Because the U.S. introduced new export restrictions effective January 1, 2024—banning exports to China of immersion lithography systems at or above the NXT:2000i class, and restricting exports of the NXT:1970i and NXT:1980i models to certain Chinese entities. As a result, everyone tacitly understood the urgency: Although typical delivery timelines stretch over a year after order placement, exceptional measures were taken—pushing hard to complete deliveries before year-end. In December 2023 alone, China’s procurement spending at ASML surged tenfold year-on-year. Yet behind this dazzling 2023 revenue performance lies a sharp plunge in new orders. In 2022, ASML booked €30.7 billion in new orders (while its annual revenue stood at only €21.2 billion). But in 2023—despite record revenue—the company secured just €20 billion in new orders.

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